Health insurance exchanges offer consumers new options

WASHINGTON — When Michael Kovner decided to buy health insurance earlier this year, he logged on to his computer, entered his age and ZIP code on a special Web site and studied the nearly 20 different policies that popped up.

Within a half-hour, Kovner, a 53-year-old technology consultant, picked a midpriced one and clicked "enroll." Back came an immediate e-mail confirmation: "Congrats, you're in."

Instead of using an insurance broker — or calling insurers one by one — Kovner signed up for coverage through Massachusetts' "health insurance exchange." The marketplace is available to residents as part of that state's 2006 health overhaul law.

The seemingly simple idea behind exchanges — one-stop shopping for insurance — masks the cornerstone role they may play in a national overhaul of the health system. President Barack Obama supports the idea, and exchanges are included in most of the health care proposals now before Congress.

Done poorly, analysts and critics say, exchanges could drive up insurance costs and encourage employers to drop coverage, unraveling the system that insures most working Americans.

While it's still unclear what Congress will do, Senate Democrats have looked closely at Massachusetts. Here's how it works there: The state established its exchange, called the Health Connector, mainly for the benefit of individuals who aren't insured by employers. They include the self-employed and the unemployed, two categories of people who traditionally have the most difficulty obtaining policies. Although they aren't required to buy through the exchange, doing so gives them group-purchasing power. Lower-income people are eligible for state subsidies.

Proponents say the Health Connector has encouraged price competition among insurers by making it easier for consumers to comparison-shop. About 200,000 people have obtained policies through the Health Connector.

Here are answers to key questions about exchanges:

Q. What is an exchange?

A. Basically, it's a marketplace where people can shop for health insurance. An exchange could be simply a detailed listing of all the insurance plans available in an area or a more regulated marketplace in which the exchange selects the insurers that are allowed to sell policies and sets the minimum benefits that those insurers must provide.

Q. Who could use an exchange?

A. All the proposals before Congress would allow uninsured individuals and those who purchase their own insurance to buy through the exchange. Small businesses are included. Under some circumstances, employees with job-based insurance could buy through an exchange instead.

Q. Would I have to buy through the exchange?

A. No, not unless you're getting a federal subsidy.

Q. If I work for a large employer, what might happen?

A. Large employers probably won't be allowed to participate in the exchanges, at least initially.

Q. What will exchanges mean for health care costs?

A. Competition among plans may help drive down premiums.

Proponents say that exchanges also may reduce administrative costs, by cutting the expenses associated with marketing and enrollment. The Blue Cross Blue Shield Association disputes that, saying that it still will be more expensive to sign up individuals and small groups than it is to enroll large employers, so the administrative savings may not be great.

Q. Do exchanges already exist?

The Massachusetts Health Connector is a well-known exchange, and the only state-sponsored program that's available to the general public. Individuals and small businesses can choose among policies offered by six insurers, which an appointed board selected. Coverage must include prescription drugs and a broad range of other services, such as hospital and doctor care.

Congressional lawmakers may copy some of the Health Connector's features.

Q. Insurance is expensive. Will there be subsidies to buy coverage through the exchange?

A. A Senate Health, Education, Labor and Pensions Committee plan and legislation that three committees in the House of Representatives proposed include subsidies for people who make up to 400 percent of the federal poverty level, or $88,200 annually for a family of four. Massachusetts subsidizes people who earn up to 300 percent of the federal poverty level, or $66,150 for a family of four. The proposals require people who seek subsidies to enroll through the exchanges.

Q. Who will oversee the exchange?

A. The Senate bill gives the exchange the authority to pick the insurers that can participate, provide information to consumers about the plans and handle complaints. The House proposal establishes a commissioner who'd solicit bids from insurers that want to participate and negotiate contracts with them.

Q. What insurance benefits will exchange plans offer?

A. The Senate bill would create a Medical Advisory Council to draw up a benefits package, which Congress would approve. There would be at least three tiers of policies, tied to the percentage of medical costs that insurers would pay. For example, with a basic plan, insurers would pick up 76 percent of expected costs. The highest-level plan would require insurers to pay 93 percent of medical bills. The House bill would create a Health Benefits Advisory Council to draw up a benefits package, which must cover at least 70 percent of expected medical costs.

(Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy-research organization that isn't affiliated with Kaiser Permanente.)